Australians are proud of the national aid program. Photo: Warren Hackshall

The federal government has dropped a bombshell on poor communities in developing countries, just in time for Christmas.

After delaying its promise on aid at the May budget, the government now plans to divert $375 million of Australia's much-needed aid budget to fund domestic refugee programs, making Australia the third largest recipient of Australian aid.

That's about 7 per cent of the budget diverted away from important development programs - programs that save lives and transform communities.

Labor may think this arrangement is in Australia's national interest. It's not. Australia's overseas development assistance is a key part of a small investment in our future security and prosperity.

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Foreign Affairs Minister Bob Carr claims this diversion is not a cut to aid, and in the most narrow, technical sense that may be true. But the reality is that Australians know the difference between apples and oranges.

They know that funds designated for poor communities beyond our shores should not be plundered to support the government's own political interests. Australians will rightly view this decision as a sleight of hand, not least because it is driven by a desperate political imperative to reach a budget surplus.

The move also sets a dangerous precedent. What other surprises does the government have in store for us? And at the end of the day, will we be able to say that Australia does what it says – that it fights extreme poverty and gives developing countries a fair go?

Bob Carr is a fine foreign minister and has always displayed a genuine commitment to aid. So it's disheartening to now see him forced to defend the indefensible, all because his party is obsessed with achieving a surplus.

As a matter of urgency, the government must explain where the $375 million will come from. Which aid programs will be stalled while funds are shuffled? Which communities will go without?

Australians are proud of our aid program. When surveyed, they overwhelmingly support it. They also expect their tax dollars to be channelled to their intended purpose and they expect transparency from the government.

Canberra's plan not only undermines the trust Australians have in our aid program, it also damages our international reputation - a reputation we have so carefully crafted in recent years, reflected in Australia successfully gaining a seat at the UN Security Council and the Millennium Development Goals Advocacy Group.

Now more than ever, Australia should be displaying leadership on a world scale, not playing a petty game of politics.

This is not an either/or debate. Australia has a strong economy. We are a wealthy nation. We are capable of caring for asylum seekers arriving in this country as well as continuing our commitment to the world's poor.

If the government is genuine in wanting to assist refugees, then it needs to address the reasons why they are fleeing - violent conflict, natural disasters and poverty. These are issues which effective aid and development programs will tackle at their source.

The government says Australia's aid program is generous, but in comparison to other wealthy nations, our record is poor. Even Britain, which has suffered significant financial hardship in recent years, will reach 0.7 per cent of gross national income next year - almost twice as much as planned in Australia.

And interestingly, only 0.1 per cent of the UK budget is used to fund domestic refugee programs.

We know aid saves lives. The number of children dying each year has nearly halved over the past two decades.

If funds are siphoned from health programs, it could literally mean the difference between life and death for some of the world's most vulnerable people, including those in our own region. And apart from the obvious issue of funding, our aid program also needs predictability.

Consistent, long-term funding is critical for success.

Just to give a snapshot, it is estimated that in the last year alone Australian aid money saved at least 200,000 lives, provided education for more than half a million children and gave disaster assistance to more than 10 million people.

Let's hope the government ruminates on those numbers as it considers its next move.